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HomeBusinessAnalysts see inflation rising to 19.6% in July, further hike in MPR

Analysts see inflation rising to 19.6% in July, further hike in MPR

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Last week, the National Bureau of Statistics (NBS) published the Consumer Price Index (CPI) report for June 2022. It reported that headline inflation rose 88bps to 18.6 per cent for the month, with the inflation basket expanding 1.8  per cent m/m.

Interestingly, the inflation print of 18.6 per cent in June 2022 represents the highest level since January 2017.

In addition, all components of the CPI basket increased. Analysing the inflation sub-indices, price pressures remained across as food inflation rose to 20.6 per cent, following a m/m climb of 2.1 per cent (from 2.0 per cent in May).

Also, core inflation remained elevated at 15.8 per cent but m/m increases moderated to 1.6 per cent (from 1.9 per cent in May).

The surge in inflation continued to be driven by usual suspects, surging food prices, higher energy cost and consequent pass-thorough impact on prices of other commodities (for example via higher logistics cost).

For example, a recent price watch from the NBS shows that price of key staples such as 2kg of Wheat flour (up 34.9 per cent y/y), 1Kg of Beans (up 37.2 per cent y/y), 1kg of Yam tuber (up 37.9 per cent to N372.23) and Palm oil (up 42.8 per cent y/y).

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In addition, rising diesel prices (up 180.8 per cent y/y) and the impact on transportation costs (Airfares, Road Transport and Logistics) have supported the surge in core inflation.

However, noteworthy to highlight is the slowdown in m/m increase in the core sub-index which was driven by recently stable energy prices.

Looking ahead, we remain pessimistic about the inflation outlook for Nigeria. We expect food price pressures, elevated energy costs and a relatively low base for inflation will keep the inflation rate elevated.

Given the foregoing, we project the inflation rate will rise to 19.6 per cent in July 2022. We believe this holds significant concerns for monetary policy outlook.

We see room for another 100bps hike in the MPR over the next two Monetary Policy Committee (MPC) meetings, as they try to balance moderate economic recovery with fighting inflation fires.

Lastly, fixed-income investors are admonished to trade with caution as we see significant interest rate volatility over the next months.

~United Capital Plc

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